Support and resistance act like price boundaries. Think of support as a price line below where things are being sold now, like a safety net or the flooring of a house. It stops prices from dropping too much and often makes them go up again.

On the other hand, resistance is like a price line above where things are being sold now, like a limit or the roofing of a house. It prevents prices from going too high and usually makes them come down.

When prices touch the support line, they usually go up. When they touch the resistance line, they tend to go down. Sometimes, if prices go below the support line, then the support would eventually become a resistance, and so it is when the price goes above the resistance level, the resistance level eventually becomes the support level while you choose another point for your resistance.

So, these lines help us see where prices might change direction, showing us how the market is shifting. When prices break these lines, it means things in the market are changing – like what people want to buy and how much they’re willing to pay.

Support and Resistance happen because of how many people want to buy and how many want to sell. If lots of people want to buy (demand is high), the price can go up. But if lots of people want to sell (supply is high), the price can go down.

Here’s a way to make money by watching how prices move up and down. Imagine you have special lines that show where prices might stop or change direction – these are the Support and Resistance zones.

Here’s how it works:

1. Choose your suitable points and draw those lines for Support and Resistance.
2. Watch if the price goes to one of those lines.
3. Pay attention to whether the price bounces back from that line.
4. If it bounces, and you’re worried about losing too much money, set a line a bit above where the price bounced.
5. When the next time period starts (like a new hour or day), if the price goes above that new line, you can start trading.
6. When the price goes up a good amount, you can think about taking your profit.

So, it’s like drawing lines to see where prices might go up or down, waiting for the right moment, and deciding when to take your profit.

The Best 4 Ways to Use Support and Resistance for Trading

Range trading

Range trading is like a game of buying and selling. You buy when prices are low (at support) and sell when prices are high (at resistance), which are like important lines on the chart.

Breakout strategy (with pullback):

Sometimes, prices don’t move clearly in one direction. But then, out of nowhere, they really start shooting up or down. Smart traders wait for a little pause (pullback) near the support or resistance line before they join the action. This stops them from getting tricked into trading when the big move might not be real.

Trendline Strategy and Technical Indicators

Another way to trade is by using trendlines where you draw lines to see which way prices are heading. When prices drop a bunch, you can draw a line that connects the highest points of those drops. And when prices go up a lot, you can draw a line that connects the lowest points of those rises. These lines act like traffic signals, They help you see if prices might keep going up or down.. It’s like following a path that prices are taking.

Using Moving Averages as Support and Resistance

Imagine those lines that show the average price on a chart. They can be like flexible walls that either stop prices from falling too much (support) or prevent them from going too high (resistance). These lines change as prices move, and they can help us figure out where prices might bounce or change direction. It’s like having trampoline that prices sometimes hit and then turn around from. 

HOW TO IDENTIFY SUPPORT AND RESISTANCE

• Look for the highest points and the lowest points where prices change direction in the market swings. These points can help you find where prices might stop or turn around in the future.

• Don’t worry if the highest and lowest points aren’t a perfect match..
• Focus on the really important levels in the market.
• Stick to looking at things within the last six months.

Key points

• Support and resistance are price levels that monitor market price movement.
• Support and resistance are a product of demand and supply.
• Support and resistance have four trading strategies.
• Support and resistance are good indicators to enter the market.